Question

Oslo Co prepared the following Contribution Format income statement based on sales volume of 1,000 units. (the relevant rage of production is 500 to 1500 units):

Sales 80,000
Var C 52,000
CM 28,000
Fixed 21,840
NOI 6,160

What is break-even point in dollars sales?

Answer 1

To calculate Oslo Co's break-even point in dollar sales, divide the fixed costs of $21,840 by the contribution margin ratio of 0.35 to get $62,400. This is the amount of sales revenue Oslo Co must generate to cover all costs and break even.

Step-by-step explanation:

To calculate the break-even point in dollar sales for Oslo Co, you need to use the formula:

Break-even point (in dollars) = Fixed Costs ÷ Contribution Margin Ratio.

The contribution margin ratio is computed by dividing the total contribution margin by total sales.

Looking at the provided income statement, Oslo Co has:

• Fixed Costs = $21,840
• Total Sales = $80,000
• Variable Costs = $52,000
• Contribution Margin (CM) = $28,000

To find the Contribution Margin Ratio:

Contribution Margin Ratio = CM ÷ Total Sales = $28,000 ÷ $80,000 = 0.35

Therefore, the break-even point in dollar sales is:

Break-even point = Fixed Costs ÷ Contribution Margin Ratio = $21,840 ÷ 0.35 = $62,400

So, Oslo Co will break even when it reaches $62,400 in sales.